EMERGING MARKETS-Brazil real, rates jump on inflation fears

Thu Feb 7, 2013 1:24pm EST

* Brazil inflation hits fastest monthly rate since April
2005
    * Central bank chief says "concerned" about inflation
    * Cenbank source says inflation to moderate in 2nd half of
2013
    * Brazil real gains 0.9 pct, Mexican peso 0.2 pct weaker

    By Walter Brandimarte
    RIO DE JANEIRO, Feb 7 (Reuters) - Brazil's currency gained
more than 1 percent while interest-rate contracts soared on
Thursday after data showed January consumer inflation ran at its
fastest monthly pace in nearly eight years.
    The data, which fueled bets that policymakers will have to
strengthen the currency or tighten monetary policy to keep
prices under control, had its market impact magnified when
central bank president Alexandre Tombini said he was "concerned
about inflation in the short term." 
    The real  strengthened as much as 1.3 percent to
1.9610 per dollar to its highest level in nine months following
his comments, made in an interview with the O Globo newspaper.
It last traded at 1.9698 per greenback, 0.9 percent stronger on
the day.
    Adding to Tombini's remarks, a source on the central bank's
monetary policy board said a more stable exchange rate will help
inflation ease "a lot" as of July after a more difficult first
half of the year. 
    After weakening about 30 percent against the dollar between
July and November, the real has gained about 8 percent since
then. Last week it pierced the 2 per dollar mark for the first
time in seven months as investors bet the central bank would
resort to a stronger currency to cheapen the price of imported
goods and put a lid on inflation.
    "What changed in the economic outlook from last year was
inflation. The government is now signaling an exchange rate
closer to 2 reais," said Mauricio Nakahodo, an economic
consultant with Tokyo-Mitshubishi bank in Sao Paulo.
    The central bank is now likely to tolerate a real as strong
as 1.95 per dollar, Nakahodo added.
    Interest-rate futures also soared after the government said
the benchmark IPCA price index rose 0.86 percent in
January, fueled by more expensive food. In the 12 months through
January, inflation rose to 6.15 percent, nearing the 6.5 percent
ceiling of a government target. 
    Interest-rate contracts maturing in January 2014,
one of the most traded, jumped 10 basis points to 7.45 percent
-- its highest level since mid-October.
    Elsewhere in Latin America, currencies were flat to weaker
as renewed euro zone concerns increased investors' aversion to
risky assets.
    The Mexican peso lost a quarter of a percentage point
while the Chilean peso ended little changed.
    
    Latin American FX prices at 1805 GMT:
    
 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                1.9698     0.90     3.56
                                             
 Mexico peso               12.7125    -0.24     1.19
                                             
 Chile peso               472.3000     0.04     1.36
                                             
 Colombia peso           1792.0100    -0.03    -1.45
                                             
 Peru sol                   2.5790    -0.08    -1.09
                                             
 Argentina peso             4.9925    -0.10    -1.60

 Argentina peso             7.6600     0.52   -11.49
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